TOKYO: An auction of five-year Japanese government bonds on Thursday attracted bids 3.37 times the amount accepted, indicating lacklustre demand.
Japan's Ministry of Finance offered 2.4 trillion yen ($31 billion) of five-year JGBs with a coupon of 0.3 percent, down from 0.4 percent at the previous five-year auction in July and the lowest since November.
KEY POINTS:
Bids totalled 3.37 times the amount of offers accepted, down from 3.52 at the previous auction. The ratio is also lower than 3.51 the average ratio from the past 12 sales.
The tail was 0.03 and widened from 0.01 at the previous auction last month. The tail is the difference between the average and the lowest price at an auction. A wider tail suggests there are fewer consensuses about where the new bonds should be priced and is regarded as a sign of weak demand.
Lead 10-year JGB futures pared gains and were up 0.02 point at 142.21 after the auction results were announced, compared with their morning close at 142.34.
COMMENTARY:
YUSUKE IKAWA, RATES STRATEGIST, RBS SECURITIES
"The auction result was not as strong as market expected, with the tail widening to a level not seen since before the March 11 earthquake. This was simply because investors were not eager to buy as absolute yield levels were low.
"But investor demand is expected to get stronger on dips, and that is why JGB market is remaining firm."
AKIHIKO INOUE, CHIEF STRATEGIST, MIZUHO INVESTORS SECURITIES
"I think the auction drew lukewarm demand. The lowest price was within market expectations whereas the average price was as high as 99.93 yen.
"But there were mixed views on the auction. Some players were hesitant on the sale because five-year bonds looked expensive, and others were bullish on the view that the Bank of Japan may take additional steps to ease monetary policy amid the ongoing yen strength."
BACKGROUND:
The five-year JGB yield hit a nine-month low of 0.315 percent this week, supported by safe-haven demand amid tumbling global equities following a downgrade to the U.S debt rating and with Europe's ongoing debt problems.
The five-year sector looked expensive on the yield curve, analysts said, but with lower volatility compared with other maturities and with the possibility of further monetary easing amid ongoing yen strength, the sale is expected to draw smooth demand from investors such as Japanese banks, the main players in the maturity.
Copyright Reuters, 2011
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